The dollar hit a new two-decade peak against a basket of currencies on Wednesday, on the back of rising Treasury yields, while sterling sank near a record low on concerns over Britain's radical tax cuts to spur growth.
The US dollar index hit a new high of 114.68 in Asia trade and was last up 0.42 per cent at 114.62.
The US 10 year Treasury yield rose to 4 per cent for the first time since 2010, topping 4.004 per cent. The yields for the two-year period were 4.2912 per cent.
The gilt yields have gone ballistic in the UK because of the spillover from the UK. Moh Siong Sim, a currency strategist at the Bank of Singapore, said that there was a ricochet effect because of the spillover into other DM bond markets.
This is against the backdrop of a very determined message from the Fed to do whatever it takes to bring inflation down. Chicago Fed President Charles Evans, St Louis Fed President James Bullard and Minneapolis Federal Reserve Bank President Neel Kashkari reiterated the Fed's hawkish stance overnight with Evans saying that the central bank will need to raise interest rates to a range between 4.50 per cent and 4.75 per cent.
The pound fell nearly 1 per cent to US $1.0634, reversing a marginal 0.4 per cent gain in the previous session, and still nursing deep losses after its slide to an all-time low of US $1.0327 at the beginning of the week.
The Bank of England Chief Economist Huw Pill said overnight that the central bank is likely to deliver a significant policy response to Finance Minister Kwasi Kwarteng's huge tax cuts.
He added that the central bank wants to wait until its next scheduled meeting in November before making its move, quashing market speculations about a possible interest rate hike.
Carol Kong, senior associate for international economics and currency strategy at the Commonwealth Bank of Australia, said that sterling's going to be pretty weak for the near-term.
It's up to the UK government to resolve this rather than Bank of England. The Aussie hit a trough at US $0.6389, its lowest since May 2020, as the dollar pushed other currencies to multi-year lows on Wednesday. The kiwi lost 1 per cent to US $0.55645, its lowest since March 2020.
The Chinese offshore currency fell as far as 7.2349 per dollar, the lowest level since such data became available in 2011.
A source told Reuters late on Tuesday that Chinese monetary authorities are asking local banks to revive a yuan fixing tool it abandoned two years ago, as they try to steer and defend the rapidly weakening currency.
The euro fell 0.4 per cent to US $0.9555, not far off from the recent 20 year trough of US $0.9528, with the latest flare-up in the euro zone's gas crisis adding to the gloomy outlook for the single currency.
Europe was on Tuesday investigating what Germany, Denmark and Sweden said were attacks that have caused major leaks into the Baltic Sea from two Russian gas pipelines at the centre of an energy standoff.
The yen last bought 144.68 per dollar, little helped by an intervention from Japan to prop up the fragile currency last week.
Pablo Calderini, chief investment officer at the hedge fund Graham Capital, said that the BOJ's yield curve control policy would be a big change to the value of the yen.
It will be hard to see a significant appreciation of the yen as long as you keep a rate differential of 4 per cent.